Private equity is set up for a buyout boom in 2023, 2024

Yahoo Finance Live anchors Brian Sozzi and Julie Hyman discuss the expectations for private equity firms in 2023.

Video Transcript

JULIE HYMAN: Private equity deal value reached $819 billion in the first three quarters of this year, that’s higher than any previous annual amount on record. Same for 2021. Can the good times in private equity continue into next year? Brian Sozzi’s got a take on that.

BRIAN SOZZI: Yeah, sure, take over. No.

JULIE HYMAN: Why not?

BRIAN SOZZI: Of course. We’ve got some new data out from S&P Global saying that the amount of dry powder, or the other way of saying it, cash that private equity firms have, now approaching $2 trillion. That is absolutely huge. Some further stats here to break this all down.

Nearly 1/4 of the industry’s estimated cash reserves was held by just 25 firms. Of those top 25 firms, 18 were based in the US and 7 in Europe. The top firm with the most dry powder or cash to put to work, Blackstone, almost $44 billion, the largest cash holder out of all the private equity players.

With nearly $34 billion in cash reserves, Thoma Bravo, which has been making power moves I would say the past six months, recently buying Coupa Software in a headline grabbing transaction a couple of weeks ago. They’re on that list as well in number two. And number three, Advent International Corp with about $32.5 billion in dry powder or cash to go out there and make some deals.

And here are some of the biggest deals we have seen this year. Of course, we’ve seen Coupa make its acquisition. You’ve seen Blackstone with American Campus and Thoma Bravo doing its thing over there with Coupa, and then of course, Citrix earlier in the year.

Some really big deals. And you get the sense, Julie, that they might be able to continue next year as you get rates starting to peek out just a little bit. But the bottom line is, this is a lot of cash for these companies to be having at a time where valuations, especially in software like Coupa, they’ve been absolutely hammered.

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JULIE HYMAN: Well, and it helps them to have this cash so they don’t have to borrow money to do LBOs, right? Although, there have been some LBOs, in fact, there was a big one earlier in the year. But the corporations that lent them the money to do the deals now are having trouble selling that debt on the other side. So it seems like cash deal, the deals this year will likely at least initially be driven by that cash.

BRIAN SOZZI: Right on. Hit me with the take. Not surprised here. I guess the feast, the feast is coming for private equity, and there I’m holding a feast of cash.

$2 trillion on cash is a lot. And again, with these valuations where there are, there a lot of good businesses out there really trading at valuations that are not only attractive versus the broader market, the S&P, NASDAQ, you name it, but also versus the historical averages. And as you get a sense that rate increases have started to peak out maybe by the middle of next year, you could see probably CP makes some headline grabbing deals.

JULIE HYMAN: Interesting. Look forward to that.

BRIAN SOZZI: Look forward to reporting with you, Julie.

JULIE HYMAN: Yes.

BRIAN SOZZI: Yes.